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BIT: On The Lookout For A Cheaper PIMCO Alternative


  • BIT is a multi-sector fixed-income CEF with a similar allocation profile to taxable PIMCO CEFs.
  • On the plus side, BIT has delivered a very strong 2020 NAV return, outperforming PIMCO CEFs. Its discount is also significantly wider, and it should be resilient to higher rates.
  • The downside is that the fund's longer-term NAV returns trail PIMCO CEFs, and its distribution coverage is on the low side.
  • Overall, BIT may look attractive to investors who are concerned about a market fallout from rising rates as its wider discount and negative duration should prove supportive.
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This article was originally released to Systematic Income subscribers on 18-Mar.

PIMCO taxable CEFs continue to find a home in many investor portfolios. However, the funds' valuation, which are approaching a 15% average premium, is pushing some investors to look elsewhere for cheaper alternatives. In this article we take a look at the BlackRock Multi-Sector Income Trust (NYSE:BIT) which has a similarly broad allocation profile and a similar elevated leverage level. The fund is trading at a 3.1% discount and an 8.31% current yield.

Our main takeaway is that BIT has a number of attractive features, such as its relatively low management fee compared to the PIMCO funds, a more attractive valuation and a very low duration which should help it in a rising-rate environment. The fund also proved relatively nimble in navigating the COVID crash, sharply outperforming PIMCO CEFs in 2020.

The downside of BIT is its longer-term underperformance against PIMCO CEFs which is likely due to its lower duration stance. The fund's risk-adjusted returns are also on the low side.

Overall, BIT may look attractive to investors who are concerned about a potential market fallout due to sharply rising rates. The wider discount of BIT as well as its low duration stance should allow it to perform well relative to the PIMCO suite.

Performance In Context

In terms of historical returns, across a number of different time frames, BIT has tended to underperform PIMCO CEFs, with the exception of PIMCO Strategic Income Fund (RCS).

Source: Systematic Income

The key drivers of returns are sector allocation, leverage and fees, roughly in that order. BIT appears to have a higher investment-grade allocation than most PIMCO CEFs (with the exception of RCS), at a lower duration, at a leverage level roughly in the middle of the pack and at a fee on the lower end of the

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This article was written by

ADS Analytics profile picture

ADS Analytics is a team of analysts with experience in research and trading departments at several industry-leading global investment banks. They focus on generating income ideas from a range of security types including: CEFs, ETFs and mutual funds, BDCs as well as individual preferred stocks and baby bonds.

ADS Analytics runs the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

scarp1952 profile picture
aDS, I was combing through my archives and went over your BIT article. With so many things being flux presently do you still view bit as a fund suitable in a rising rate arena. I appreciate all your work. Thanks.
ADS Analytics profile picture
@scarp1952 I would have expected stronger performance from BIT. It's down 10% vs 13-14% for the PIMCO funds. I guess that's something but not a million miles away. Might as well just hold some Loan CEFs which have a similar duration profile (i.e. around 0) but have held up even better.
scarp1952 profile picture
@ADS Analytics Thanks for the feedback. When you say loan CEFs can you provide some examples please. Thanks
How much of the underperformance, then outperformance is due to Aviron? It's probably most of it.

They wrote off this loan entirely at end of 2019, though it was getting written down before that. The WSJ wrote the story up about the fraud and conflict-of-interest going on with this.

The Daily Mail has the most thorough write-up I can find: www.dailymail.co.uk/...

Blackrock gave $25m back to BIT in April 2020 as part of its insurance deductible, and then more from their insurance during that summer - up to the entire original $72m investment with interest.

Here's BIT's press release describing the total recovery of the loan: www.blackrock.com/...

So they underperformed leading up to the crisis as a result of writing down to 0% a position that was as high as ~10% at one point, then received their entire investment back in CASH during the crisis, with which to invest at great prices.
ADS Analytics profile picture
@Shaver933 that's good color. it's been a while since i read the daily mail.
Damon Judd profile picture
I held BIT from 2019 on thru all of 2020 and have added on dips because they held distributions steady and still trading at a decent discount to NAV as you point out. Until that discount closes I will continue holding and DRIPing new shares.
Dick Cod profile picture
Hi....I certainly understand being of two minds about BIT. Looking at disclosures and financials, it's clear the fund has been distributing FAR more than its NII. BUT its total return has been quite acceptable, so the managers are doing that part right.
My (admittedly hot button) issue with Blackrock on this and some other CEFs is this: there is nothing at all wrong with running a lower-income high-total return fund ---- but phoneying it up as a high income fund with an apparently unearnable "managed" (read "deceptive") distribution. It is not a fund to be ashamed of ---- so why the high BS-coefficIent characterization?
Larry Fink certainly doesn't care what I think of BIT, but I've always thought Blackrock was better than this.
Regards, Dick
Tampa-T profile picture
BIT has performed pretty well for me, thanks for the article, don't see much written on this one, kinda UTR it seems.
Eileen Dover profile picture
When I saw the word "Mortgage" in a lot of their top holdings, I left the building.
It won't get me a second time.
I am concerned that the fund's coverage of it's distribution is well below 100%. Are you not concerned that BlackRock may decide to cut it's distribution in order to more closely match it's income?
ADS Analytics profile picture
Certainly possible. At the moment the fund has a level managed distribution plan so it would have to change this plan in order to cut the distribution.
rickevantodd profile picture
Excellent article, most of which I understood, this time! Very long PCI, PDI, RCS and I nowown PDO.
Gary Gambino profile picture
BIT looks closer to PDO than any of the older PIMCO funds.
gastro4 profile picture
Own PCI but not happy about its 10% premium to NAV. This looks like a good pair trade, especially with BIT lower ER.
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